Modular Multilevel Converter (MMC) will be extensively used in High-Voltage Direct Current (HVDC) transmission networks because of its superior characteristics over Line Commutated Converter (LCC). Increasing the reliability of the MMC is directly related to the balancing of the MMC sub-module capacitors voltages which guarantees the proper operation of the converter and lowers the stress on the sub-modules. This paper presents an adaptive voltage balancing strategy based on capacitor voltage estimation utilizing a hybrid ADALINE-RLS scheme. The proposed strategy eliminates the need of measuring sub-modules capacitor voltages and associated communication link with the central controller. Furthermore, the estimated capacitor voltages are utilized to detect and localize different types of sub-module faults. After isolating the faulty sub-modules, the proposed fault tolerant control unit (FTCU) modifies the parameters of the voltage balancing strategy to overcome the reduction of the active submodules. The dynamic performance of the proposed strategy is investigated, using PSCAD/EMTDC simulations and hardware in the loop (HIL) real-time simulations, under different normal and faulty operating conditions. The accuracy and the time response of the proposed fault detection and tolerant control units result in stabilizing the operation of the MMC under different types of faults. Consequently, the proposed integrated control strategy improves the reliability of the MMC.